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The State of Supply Chain in 2019
This morning, I’ve already had three deliveries to my front door. And it’s not even 10am. Five years ago that would have been unusual. Today, it’s standard consumer behaviour and it’s had a major impact on supply chain activities.
At a time when nothing stands still for very long, we take a look at the state of supply chain management and logistics through the lens of three major trends to help you prepare for the future.
Why Supply Chain and Politics Don’t Always Mix
If your retail business sources anything from China, the US or Europe, you could find your costs going up. Thanks to the trade war between China and the US and the threat or opportunity of Brexit (you decide which), the precariousness of supply chains has been exposed.Where European trade is concerned, buying goods from the continent has become more expensive. This is due to a fall in the value of the pound from an exchange rate of around 1.40 euros to the pound in 2015 to 1.14 euros in 2019. At the start of this dip, retailers took much of the hit impacting the bottom line. This put pressure on the supply chain system, amongst other departments, to find ways to offset the cost. Or face passing additional costs on to consumers, which is now happening.However, if your retail business sells abroad, the falling pound might help as it could make your products more competitive. But the exchange rate dip has not ignited a boom in exports just yet. That might be because it takes some time to set up and operate new supply chains, so perhaps overseas trade growth is in the pipeline.Another area of risk potentially linked to Brexit is labour shortages. Research from the Centre of Excellence Logistics and Supply Chains (CELAS) at the University of Northampton found that:
- 55% of logistics companies were struggling to recruit skilled staff
- 70% of participants had been forced to recruit from outside the UK
With freedom of movement likely to be curtailed post-Brexit, only skilled people earning over £30,000 per year are likely to be admitted from Europe. This could create difficulties in the supply chain, particularly where lower paid jobs are concerned. For example, demand is outstripping supply for delivery drivers who, according to Payscale, earn on average £18,719 a year. Which means it would not be possible to recruit from Europe. This issue is so serious it has even been raised in parliament with HM Treasury stating: “The Government agrees with the industry estimate of a shortage of about 45,000 drivers. It told us that the problem was long-standing and had been evident a decade ago.”This indicates that long-term challenges are combining with current political pressures to cause potentially serious issues for supply chain systems.However, there are a few solutions that could be applied to a range of supply chain roles:
- Pay more for lower level roles (including roles like drivers where pay is around £19,000) to inflate salaries above £30,000 and continue to recruit from Europe – clearly not an ideal answer.
- Find learning and development solutions to make supply chain careers more appealing and to enable people to move sideways into supply chain jobs. This will take time so organisations without strong career paths and supporting development need to look at this now.
- Digitise supply chain systems to reduce the reliance on humans where technology provides practical solutions, for example by creating automated warehouse systems.
Examples of situations where technology can support supply chain management and logistics include boosting the human workforce with robotics. Gartner recommends simplifying the materials movement process by using self-driving robots in warehouses that calculate their position and route to move containers or parts. Leading retailers are already turning to technology for supply chain software solutions, like Amazon’s autonomous Scout delivery robot currently being tested in Seattle. This kind of technology is ready to provide solutions to some of the challenges facing the supply chain industry today. But being able to do so relies on embedded digital supply chain systems.
Digital Supply Chain
The days of pen and paper should be behind us when it comes to supply chain systems. Retailers know they need to move to digitised supply chain software, but what does that look like? With such a wide range of technology and solutions to choose from, there’s no single definition about what digitisation means. Core to the concept is digitised information providing end-to-end supply chain management and logistics visibility in a way that enables collaboration within and between organisations. This doesn’t necessarily mean a complete overhaul of existing systems as new supply chain platforms can be plugged into old systems using API networks. With modern technology supporting into supply chain processes, the digital supply chain will deliver productivity enhancements like automation and will enable detailed analysis and insight that drives improved decision making and business efficiencies.The kinds of technology driving supply chain digitisation include:
- AI and advanced analytics are already capturing and using relevant data (like social, weather, news feeds and IoT data like fleet information) to inform broad and detailed insights into the entire supply chain which enable appropriate action to be taken.
- The Internet of Things will advance at scale and pace extending from existing items like real time warehouse management systems (WMS) and fleet management solutions to provide:
- enhanced dynamic inventory tracking through IoT technology to increase visibility throughout the retail supply chain
- alerts when machine parts need attention or replacement, automatically sent to the company’s suppliers letting them know when to deliver replacement parts
- cargo security monitoring (eg preventing unauthorised opening) by leveraging IoT technology
- Warehouse management systems are now able to automatically send and receive inputs from across the system to centralised software that orchestrates warehouse systems to meet increasingly complex demands. For example, monitoring and controlling temperatures in delivery vehicles, warehouses and stores.
Retailers need to understand the challenges in their business, identify opportunities to solve these problems with digital technology and then implement solutions in such a way as to work with existing infrastructure.
Looking Ahead to the Circular Economy
Historically, supply chain was a one-way process with goods in at one end and out the other. Increasingly, online shopping and changing consumer expectations have led to more returns being incorporated into an increasingly circular process.This looping supply chain will be taken to completely new levels with the circular economy. As defined by Gartner: “a circular economy is an economic model that separates the ability to achieve economic growth from the consumption of natural resources.”Instead of our linear approach of taking, making and disposing, humans need to find a better way of using the world’s resources. One that doesn’t continually eat into them and produce toxic waste. As the Ellen McArthur Foundation visualises: “imagine if we could design products to come back to their makers, their technical materials being reused and their biological parts increasing agricultural value. And imagine that these products are made and transported using renewable energy. Here we have a model that builds prosperity long term…”In the same way that nature creates, uses and recycles biological materials, humans must adapt a similar cycle. How is this different to recycling or sustainability? Approaches like ethical sourcing are just one stage in the circle. This is an antire and repeating product lifecycle that relies on three core aims:
- Design out waste and pollution
- Keep products and materials in use
- Regenerate natural systems
This could mean:
- creating compostable packaging
- cycling valuable materials so they retain their quality and usefulness beyond the original shelf life of the product
- rejecting a throw away culture for a return and renew one
- rethinking ownership so customers buy a license from manufacturers instead of a product
This isn’t a niche trend for a select few eco businesses. Companies are already pursuing circular economy models that necessitate the supply chain to transform existing operating processes:
- IKEA – trialling a scheme where customers bring old IKEA furniture back to the store in exchange for a voucher. IKEA then recycles old furniture into new to be re-sold.
- H&M – have recycling points in store for old clothes to be dropped off, recycled and turned into new clothing. They aim for 100% of all their clothes to be made from recycled materials by 2030.
- John Lewis – offering customers financial incentives for returning used clothing through an app. The programme aims to reduce the 300,000 tons of apparel waste that end up in landfill each year.
With 80% of retailers saying their supply chain is responsible for delivering the strategically important circular economy, this is an opportunity to elevate the profile of supply chain leadership.Supply chain systems certainly have their work cut out to continue to meet customer, political and business demands. The retailers who are making the most of this new set of circumstances are those who’ve embraced technology to enable seamless multi-channel commerce. Positioning their business to tackle the next wave of change, whatever it brings.Find out what one of our supply chain experts has to say about forecasting and category management.